Where’s the action going to be: The Viedea guide to deals in 2011 – Compiled by Deepak Srinath with contributions from Uday Disley, Aravind G.R and Alap Bharadwaj

As we take stock of the year that went by and take our collective deep breaths for the year ahead, we’re pondering on the big question- what do we focus on in 2011? As part of our business planning process we asked each team member to send in their predictions for the year…and predictably got some interesting comments.  Uday felt this was akin to predicting whether the Indian team will win the world cup at home and Aravind opined that we should just ask that big brother VC fund (Wily Wonka’s chocolate factory is Aravind’s precise metaphor) with an army of ex-consulting associates to tell us what sectors they’re investing in and pick up mandates from all companies in those sector….The logic being that all other funds will follow big brother and we’ll be sitting pretty. Finally after much persuasion, the team sent in their vision for the year ahead, and we present to you an edited summary of our guideline for 2011:

(Please note- This is limited to VC/PE and M&A activity in the sectors we focus on in the early, growth and mid market space)

1. Internet /E-Commerce – Unanimously elected as a high action sector for the year. Frantic VC  and angel activity will continue for the first two quarters of CY2011, fuelled by the makemytrip inspired billion dollar IPO vision. The Indian consumer finally seems to be buying online and we expect all sub sectors in the ecommerce space to see funding activity. The internet investment frenzy will ease off by the second half. However, we expect strong M&A action, both inbound and domestic consolidation through the year.  The second half will also see Series B and C investments in internet firms that have managed to reach some scale.

2. Education – Last year’s darling, still has some fizz left for this year. Aravind, our in-house education expert believes that funding action will mostly be for mid to large size firms. Lot’s of small M&A deals are expected as PE funded players mop up strong regional brands to consolidate, especially in the tutorial and test prep space.  M&A deals of the size of Tutorvista-Pearson will be more of an exception than the norm. Valuations will remain unrealistic though, and we may actually see a lot of long drawn out deals that take a long time to close. (Note to Aravind – Patience and Stamina, your mantra for the year!J)

3. Mobile/3G/Connectivity – This year’s big focus in the mobile space will be around 3G plays- Video, Optimization, Software products, Cloud, Data Security and Recovery, Gaming (enabling not developing). We expect VC investments in all these areas and the likes of Apalya have already demonstrated this emerging trend.

4. IT/Tech services – Unanimously voted as the ‘not cool’ sector of the year.  As Alap says,”Mid cap IT will see another year of stagnation on the deal front.” There may be some outbound M&A  traction with Indian mid cap companies acquiring in geographies like Australia and South America.  Alap is betting on Infy making a big acquisition this year but the office betting syndicate is not giving it favorable odds yet.       

5. Hardware devices/Tablets – The gadget geeks in the office (everyone except me) want to believe this will be the year of the Indian tablet. Notion Ink has swayed them all, and we’re hoping this is one rock star to emerge from India. However, hardware plays from India remain hugely challenging and we don’t expect much funding activity here. Even the low cost mobile handset plays seem to have peaked and we expected that raising PE funding will be a challenge for new players.

6. Healthcare – Will continue to attract investor attention, both hospitals and services/technologies that enhance healthcare delivery. Rural healthcare providers will attract VC investment. Consolidation will be seen with bigger hospital chains acquiring smaller or regional hospitals.

7. Financial Services – Financial inclusion, the big investment theme in India over the last few years will continue to drive investments this year also. The MFI party will be muted this year, but areas like housing loans to lower income segments will attract PE investment. Mobile banking platforms, combining technology and brick and mortar may attract some investment.

8. Agri and Food – Farm to fork seems to be the theme for this year with supply chains and agri warehouses continuing to attract some serious investments.  Aravind is of the opinion that food processing companies that emerge from the food processing parks set up by the government will attract some investment.

We hope our analysis is useful as you plan your year. Thank you.